The Money is in the Details
Little things can make a big difference. For example, on the men's pro golf tour this year, the difference in average score per round between the number one money earner (Tiger Woods) and the player ranked 150th (Chris Riley) was a mere 3.4 strokes. However, Woods earned $9.5 million more than Riley!
For us mere mortals who are more reliant on 401(k) plans and IRAs to fund our future than our golf scores, there's a similarly important number to manage: the fees attached to our retirement plans. A recent article in USA Today used the example of someone with 35 years before retirement and $25,000 in a 401(k) plan. With no further contributions, an average seven percent annual return, and fees that shave half a percentage point off the return, the balance would grow to $227,000 by retirement. Dial those fees up to one and a half percent, however, and the balance would total nearly $65,000 less.
Matt's View
Most of us probably spend more time comparing prices on different brands of toothpaste than comparing fees on different investment choices. But the fee comparisons would be far more profitable. A good place to start is to find out the expense ratio of any mutual fund you're considering. It's a good way to compare operating fees across different funds. Average ratios range from 0.25% for index funds to 1.5% for actively traded funds. Then use that information (the lower the ratio the better) to help you choose your funds. The difference between low- and high-fee funds may not be enough to give you Tiger Woods' lifestyle, but it'll go a long way toward keeping you out of the financial rough in retirement.
This article filed in: Investing , Retirement , Saving
Managing Money by The Book
- "To keep me from becoming conceited because of these surpassingly great revelations, there was given me a thorn in my flesh, a messenger of Satan, to torment me. Three times I pleaded with the Lord to take it away from me. But he said to me, 'My grace is sufficient for you, for my power is made perfect in weakness.'" - 2 Corinthians 12:7-9
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